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Dual Labor Market and Endogenous Fluctuations

  • Francesco De Palma

    ()

    (BETA - Bureau d'économie théorique et appliquée - CNRS - Université Louis Pasteur - Strasbourg I)

  • Thomas Seegmuller

    ()

    (EUREQUA - Equipe Universitaire de Recherche en Economie Quantitative - UP1 - Université Panthéon-Sorbonne - CNRS)

We study the influence of wage differential on the emergence of endogenous fluctuations. In this way, we introduce a dual labor market, based on the Shapiro-Stiglitz efficiency wage theory in an overlapping generations model. We show that wage inequality is a source of endogenous fluctuations. Indeed, a sufficiently strong wage differentialleads to the occurrence of cycles of period two and local indeterminacy. Moreover, in contrast to several existing contributions, these results depend neither on increasing returns to scale, nor on the degree of capital-labor substitution.

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Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00194165.

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Date of creation: Jun 2005
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Handle: RePEc:hal:cesptp:halshs-00194165
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  1. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
  2. Gibbons, Robert & Katz, Lawrence F, 1992. "Does Unmeasured Ability Explain Inter-industry Wage Differentials?," Review of Economic Studies, Wiley Blackwell, vol. 59(3), pages 515-35, July.
  3. Benhabib, J. & Farmer, R.E.A, 1991. "Indeterminacy and Increasing Returns," Papers 165, Cambridge - Risk, Information & Quantity Signals.
  4. Karnit Flug & Zvi Hercowitz, 2000. "Equipment Investment and the Relative Demand for Skilled Labor: International Evidence," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(3), pages 461-485, July.
  5. Jean-Michel Grandmont & P, A, Pintus & R, De Vilder, 1997. "Capital-Labor Substitution and Competitive Nonlinear Endogenous Business Cycles," Working Papers 97-28, Centre de Recherche en Economie et Statistique.
  6. Benhabib, Jess & Nishimura, Kazuo, 1983. "Competitive Equilibrium Cycles," Working Papers 83-30, C.V. Starr Center for Applied Economics, New York University.
  7. John M. Abowd & Francis Kramarz & David N. Margolis, 1999. "High Wage Workers and High Wage Firms," Econometrica, Econometric Society, vol. 67(2), pages 251-334, March.
  8. Woodford, Michael, 1986. "Stationary sunspot equilibria in a finance constrained economy," Journal of Economic Theory, Elsevier, vol. 40(1), pages 128-137, October.
  9. Harrison, Sharon G. & Weder, Mark, 2002. "Tracing externalities as sources of indeterminacy," Journal of Economic Dynamics and Control, Elsevier, vol. 26(5), pages 851-867, May.
  10. Miles S. Kimball, 1989. "Labor Market Dynamics When Unemployment Is A Worker Discipline Device," NBER Working Papers 2967, National Bureau of Economic Research, Inc.
  11. Cazzavillan, Guido, 2001. "Indeterminacy and Endogenous Fluctuations with Arbitrarily Small Externalities," Journal of Economic Theory, Elsevier, vol. 101(1), pages 133-157, November.
  12. Joshua Aizenman & Pierre-Richard Agénor, 1994. "Technological Change, Relative Wages, and Unemployment," IMF Working Papers 94/111, International Monetary Fund.
  13. Benhabib, Jess & Nishimura, Kazuo, 1996. "Indeterminancy and Sunspots with Constant Returns," Working Papers 96-44, C.V. Starr Center for Applied Economics, New York University.
  14. Cazzavillan, Guido & Lloyd-Braga, Teresa & Pintus, Patrick A., 1998. "Multiple Steady States and Endogenous Fluctuations with Increasing Returns to Scale in Production," Journal of Economic Theory, Elsevier, vol. 80(1), pages 60-107, May.
  15. Galor, Oded, 1992. "A Two-Sector Overlapping-Generations Model: A Global Characterization of the Dynamical System," Econometrica, Econometric Society, vol. 60(6), pages 1351-86, November.
  16. Grandmont Jean-michel, 1983. "On endogenous competitive business cycles," CEPREMAP Working Papers (Couverture Orange) 8316, CEPREMAP.
  17. Koebel, Bertrand & Falk, Martin & Laisney, Francois, 2003. "Imposing and Testing Curvature Conditions on a Box-Cox Cost Function," Journal of Business & Economic Statistics, American Statistical Association, vol. 21(2), pages 319-35, April.
  18. Marta Aloi & Huw D. Dixon & Teresa Lloyd-Braga, 1998. "Endogenous Fluctuations In an Open Economy with Increasing Returns to Scale," Discussion Papers 98-03, University of Copenhagen. Department of Economics.
  19. Rebitzer, James B & Taylor, Lowell J, 1991. "A Model of Dual Labor Markets When Product Demand Is Uncertain," The Quarterly Journal of Economics, MIT Press, vol. 106(4), pages 1373-83, November.
  20. Jones, Stephen R. G., 1987. "Screening unemployment in a dual labor market," Economics Letters, Elsevier, vol. 25(2), pages 191-195.
  21. Albrecht, J.W. & Vroman, S.B., 1991. "Dual Labour Markets, Efficiency Wages, and Search," Papers 492, Stockholm - International Economic Studies.
  22. Coimbra, Rui & Lloyd-Braga, Teresa & Modesto, Leonor, 2000. "Unions, Increasing Returns and Endogenous Fluctuations," IZA Discussion Papers 229, Institute for the Study of Labor (IZA).
  23. Reichlin, Pietro, 1986. "Equilibrium cycles in an overlapping generations economy with production," Journal of Economic Theory, Elsevier, vol. 40(1), pages 89-102, October.
  24. Jorgen Jacobsen, Hans, 2000. "Endogenous, imperfectly competitive business cycles," European Economic Review, Elsevier, vol. 44(2), pages 305-336, February.
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